THE reduction of prices for crude oil on the international market has sparked high expectations among consumers of reduced cost of the commodity on many domestic markets.
There has been equally strong postulation that the low price of the commodity would trigger reduced cost of other basic products that have been produced from fuel.
The crude prices in international market have fallen below US $86 per barrel during October from US $98 per barrel at the end of September and $104 per barrel in August.
In other words, the crude oil prices have crashed about 40 per cent since June, falling from around US $110 per barrel to below US $68 a barrel this week, which is also a five-year low.
This has forced governments in many countries to follow suit although their reductions have been marginal when compared to the world trend.
Zambia is not exception with the Energy Regulation Board (ERB) announcing two successive reductions of fuel prices within a space of two weeks.
The ERB on November 26 announced that the pump price of fuel for petrol would be K0.25 for petrol, 0.28 for diesel and 0.27 for Kerosene.
The energy regulator announced last weekend that the pump price of fuel has further gone down following the continuous slump on the international market.
With the new adjustment, ERB chairperson Geoff Mwape said the pump price of petrol has been reduced by 4.72 per cent, diesel by 5.55 per cent and 6.10 per cent for kerosene.
In this regard, Kerosene is now pegged at K6.77 from K7.21. The price of petrol has been reduced by a further K0.49 ngwee, diesel K0.54 and kerosene K0.44.
“The next price review will be done after the latest cargo is fully exhausted,” Mr Mwape said. “It is our hope that the next procurement will be done when international prices are still low.”
As stated earlier, the announcement has perceptibly been received with big expectations among consumers.
Many people feel that the reduction will trigger a downward adjustment of bus fares as well as other products that use petroleum products in their manufacturing.
But it must also be stated that the reduction of pump price of fuel by the ERB represents about 10 per cent.
This has placed the regulator under pressure to justify the marginal adjustment when the international market has witnessed a 40 per cent decrease.
The Zambia Consumer Association (ZACA) say ERB should have considered reducing the price of fuel by K2 to reduce the cost of production and, thereby reduce the cost of living.
“Inflation has been going up mainly due to the cost of fuel, but a further reduction will bring the cost of transportation down,” ZACA executive secretary Samuel Simutunda said.
Similarly, Private Sector Development Association (PSDA) chairperson Yusuf Dodia said the ERB’s announcement did not reflect the real happenings on the international market.
“The reduction should be in comparison with the prices on the international market and what is prevailing in the region,” he said.
“Prices on the international market have fallen by about 30 per cent, yet the reduction in Zambia is less than 10 per cent.”
Mr Dodia said the country should benefit from the reduction of fuel on the international market more so that the cost of production in Zambia was still high and uncompetitive due to the high cost of fuel.
It is also crucial however, to realise that the reduction in the prices has partially been offset by an increase in the rates of margins for oil marketing companies and commissions of petroleum dealers.
However, this does little to eliminate the obvious fact that lower oil prices should directionally benefit consumers and help struggling economies around the World.
It is for this reason that commuters and other consumers are expecting that the dwindling price for fuel will help them enjoy low prices of other commodities particularly bus fares.
Surprisingly, the ERB has not explained satisfactorily the rationale of implementing a marginal price reduction when the world was enjoying lower prices.
This has angered consumers who feel that the marginal reduction is a sign that fuel prices are no longer determined by what is happening on the world market, but the commissions of oil marketing companies and commissions of petroleum dealers.
Commuters Rights Association of Zambia (CRAZ) says it is disappointed with the way in which the ERB has handled the matter.
“We are no longer safe in the hands of the ERB,” said CRAZ national chairperson, Aaron Kamuti. “The ERB is not protecting us, we cannot even think of negotiating with bus operators on the reduction of fares because the reduction of fuel price is too minimal.”
Mr Kamuti said commuters expected that the more than 30 percent fuel reduction on the international market would result into a significant fall in the cost of fuel on the local market.
“If ERB had reduced by K1.50 or K2, then we would have been talking to bus operators, but this is not the case and we don’t know where to start from,” he said.
Although the commuters’ body appears to be in the dark on the formula to use some individuals are of the view that the decrease should be implemented.
This is particularly critical when one looks at how bus operators have reacted with lightening speed in hiking bus fares every time there was a minimal upwards adjustment in fuel pump price.
“I know that the reduction is too small but I think there was still need for the bus operators to try and reduce even with a 50 ngwee,” said Maureen Moonga, a business lady at Lusaka City Market.
“We have always seen operators increasing bus fares every time there is a slight upwards adjustment of fuel.”
Martin Jere said it would be difficult for an ordinary consumer to appreciate the recent adjustment of fuel prices if there was no deliberate effort to trickle the benefits down to the consumer.
“There is no difference or any reason for people celebrate if this is just for international market and not consumers,” he said.
“If anything, it will benefit those that are in the business because they will buy the commodity at cheap prices but sell it at almost the same prices locally.”
It is noted that the cost of producing and delivering diesel fuel to customers includes the costs of crude oil, refinery processing, marketing and distribution, and retail station operation.
The retail pump price reflects these costs and the profits, and sometimes losses of the refiners, marketers, distributors, and retail station owners.
Therefore, a consumer would be forgiven for suggesting that the prevailing low prices of crude oil on the world market has created a lucrative business for those involved in the delivery of the commodity.